Can you use a LISA and H2B ISA to buy a house?
Oasis1
Posts: 712 Forumite
I read MSE articles on these two ISAs but couldn't quite work this out...
Is there any way to 'max out' a H2B ISA, then start putting money into a LISA and then combine the two to buy a house? I have a feeling the answer is no because the way the bonuses are paid.
I currently have £8056 in Halifax's Help to Buy ISA (until recently it had a great 3% interest rate, now 2.25%, and I opened it as soon as H2B was available). I expect this to reach £12,000 by April 2020, making it eligible for the maximum £3,000 bonus.
If I haven't bought a house and don't want to at this point, is it worth transferring this into a LISA and then continuing to contribute? Or should I just start a LISA now and transfer in the H2B?
Essentially, I'm trying to maintain the flexibility of the penalty-free H2B until April 2020 incase I need to withdraw cash, whilst also being able to get more than a £3,000 bonus through LISA. Not possible, right?
How are LISA bonuses paid? If I have £100 in there, how is the 25% bonus added to it? Is it 25%/12 each month added so £2.08? Does that mean the bonus compounds each month?
Regardless, I should probably stick £1 in Skipton's LISA just to keep my options open, right?
I also wondered if this might be a sensible compromise. I could switch to Barclays' higher 2.58% interest H2B ISA, max that out, and then start contributing to a S&S LISA. Then when I want to buy a house, I'll use whichever has the biggest amount (inc. bonus). If that's H2B, great, I'll have a pension investment product leftover with the S&S LISA and if it's the other way around, I can withdraw the H2B ISA money penalty-free, which will have still benefited from a not bad interest rate and then invest it elsewhere.
Any advice/comments to untangle this would be appreciated.
Is there any way to 'max out' a H2B ISA, then start putting money into a LISA and then combine the two to buy a house? I have a feeling the answer is no because the way the bonuses are paid.
I currently have £8056 in Halifax's Help to Buy ISA (until recently it had a great 3% interest rate, now 2.25%, and I opened it as soon as H2B was available). I expect this to reach £12,000 by April 2020, making it eligible for the maximum £3,000 bonus.
If I haven't bought a house and don't want to at this point, is it worth transferring this into a LISA and then continuing to contribute? Or should I just start a LISA now and transfer in the H2B?
Essentially, I'm trying to maintain the flexibility of the penalty-free H2B until April 2020 incase I need to withdraw cash, whilst also being able to get more than a £3,000 bonus through LISA. Not possible, right?
How are LISA bonuses paid? If I have £100 in there, how is the 25% bonus added to it? Is it 25%/12 each month added so £2.08? Does that mean the bonus compounds each month?
Regardless, I should probably stick £1 in Skipton's LISA just to keep my options open, right?
I also wondered if this might be a sensible compromise. I could switch to Barclays' higher 2.58% interest H2B ISA, max that out, and then start contributing to a S&S LISA. Then when I want to buy a house, I'll use whichever has the biggest amount (inc. bonus). If that's H2B, great, I'll have a pension investment product leftover with the S&S LISA and if it's the other way around, I can withdraw the H2B ISA money penalty-free, which will have still benefited from a not bad interest rate and then invest it elsewhere.
Any advice/comments to untangle this would be appreciated.
0
Comments
-
No each person can only use one of the products towards their property purchase so choose wisely and read the T&C's carefully. LISA bonuses are added into the account shortly after, and based on, the contribution and HTB ISA bonuses are claimed by the solicitor during the property purchase based on the closing balance.
You can only transfer or contribute up to £4k per tax year into a LISA.
Alex1 -
LISA bonuses are paid based on contributions not balances, so any payment you make is boosted by the 25% topup shortly afterwards but nothing more (except interest) thereafter.How are LISA bonuses paid? If I have £100 in there, how is the 20% bonus added to it? Is it 20%/12 each month added so £1.67? Does that mean the bonus compounds each month?
That certainly wouldn't do any harm.Regardless, I should probably stick £1 in Skipton's LISA just to keep my options open, right?
Difficult to advise any further on your comparison process, other than to reiterate that you can't have everything and ultimately have to decide what's more important to you, based on a realistic assessment of when you're likely to buy and how likely it is you'd need to get hold of the money before then. Having said that, one other differentiating factor is the property value cap, which may affect your plans if you're outside London, i.e. HTB only applies to properties up to £250K while LISA goes up to £450K.0 -
But you can still have two products active?No each person can only use one of the products towards their property purchase so choose wisely and read the T&C's carefully.
Thanks that's useful to know. The MSE article says it's paid monthly, which makes it seem like an interest rate, rather than the bonus is paid shortly after each contribution (up to £4k in that FY)LISA bonuses are added into the account shortly after, and based on, the contribution and HTB ISA bonuses are claimed by the solicitor during the property purchase based on the closing balance.
Ah so I could only ever transfer £4k of my H2B in. Good to know, thanks!You can only transfer or contribute up to £4k per tax year into a LISA.0 -
Thanks for the clarification.LISA bonuses are paid based on contributions not balances, so any payment you make is boosted by the 25% topup shortly afterwards but nothing more (except interest) thereafter.
Does my example of a compromise make sense, or have I missed something making it flawed?Difficult to advise any further on your comparison process, other than to reiterate that you can't have everything and ultimately have to decide what's more important to you, based on a realistic assessment of when you're likely to buy and how likely it is you'd need to get hold of the money before then.
I probably will want to buy outside of London...Having said that, one other differentiating factor is the property value cap, which may affect your plans if you're outside London, i.e. HTB only applies to properties up to £250K while LISA goes up to £450K.0 -
But you can still have two products active?
Yes subject to their individual contribution limits and the overall £20k ISA annual allowance. Just use one with bonus towards a property purchase. So if you used the LISA you would get no HTB ISA bonus (and would no longer qualify to hold a HTB ISA ongoing). Or if you used the HTB ISA then if you needed to withdraw from the LISA you would pay the early withdrawal before 60 penalty.
If you do use a LISA for age 60+ then you would be better in S&S than cash otherwise the bonus will be erroded by the below inflation interest rates.
Alex1 -
It's doable but does seem rather haphazard in deferring significant decisions until later.Does my example of a compromise make sense, or have I missed something making it flawed?
If you chose to use HTB for your property purchase but had a substantial sum in the LISA then you could indeed leave it there until retirement but most people looking to get onto the housing ladder need access to as much of their money as they can get their hands on (both for all the one-off initial costs but also to keep mortgage costs down for the duration), so you might find it restricting to have some tied up for the long term.
Or to put it another way, the 25% government bonus with these products is attractive but shouldn't be seen as the be-all-and-end-all of your financial planning, so I'd still favour working out if/when you want to buy and any other relevant plans, and arranging your finances to meet these objectives....1 -
Thanks everyone for their input. I've taken this on board whilst number crunching to work out the best scenario.
Incase anyone is in a similar position, or would like to help check my calculations are correct, here are the details:
For context, in March 2019, I will have £20,000 in savings, of which £9,500 will be in my Halifax H2B ISA. Every 12 months I will aim to save a total of £5,000.
I've modelled three scenarios to begin in March 2019:
1. Transfer £4k savings into Skipton LISA, retain £9,500 in H2B ISA but move to Barclays for higher interest, and put the remaining £6,500 in the new Marcus savings account. Then contribute £4,000/year to LISA, whilst drip feeding money from Marcus account into the H2B to max out the £2,400 a year, until Marcus is empty. Once empty, the £1,000/year surplus would go straight into H2B ISA.
2. Transfer £4k savings into Skipton LISA and put the remaining £16,000 in the Marcus savings account. Then contribute £4,000/year to LISA, and £1,000/year to Marcus.
3. Switch H2B ISA to Barclays and continue to contribute £2,400/year. This will max out the £12k bonus threshold within 2 years, but will retain high(ish) interest rate benefit after. Remaining £2,600/year goes into Marcus savings account.
Taking H2B bonuses and interest into account, this is the total amount I project I would have towards buying a house each year. So I think aslong as I don't buy until April 2020, the first scenario beats others, and increasingly does so each year after in the event I delay buying. Also means I can access some of the money from Barclays H2B in emergencies without penalty, and enjoy the interest rate.
0 -
And here's the first scenario spreadsheet for reference
0 -
Nice detail, and helps to prove my point which I have made to a lot of people here that if you can afford to, contribute to both a HTB ISA and a LISA purely on interest arguments alone.0
-
I can generalise it for you: prioritise filling deposit accounts paying the highest net interest rate.Nice detail, and helps to prove my point which I have made to a lot of people here that if you can afford to, contribute to both a HTB ISA and a LISA purely on interest arguments alone.0
This discussion has been closed.
Categories
- All Categories
- 343.1K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.2K Work, Benefits & Business
- 607.9K Mortgages, Homes & Bills
- 173K Life & Family
- 247.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards